Reinsurance broker Guy Carpenter is the latest to review the mid-year reinsurance renewals and concurs with the other leading brokers that reinsurance rates have largely continued their double-digit downwards trajectory in July. Market pressures at the July 1 reinsurance renewals continued to drive pricing down across almost all geographies and lines of business, the broker said this morning, with many of these declines in the double-digit range.

Helping the downward trajectory to continue was a continued low loss environment, well capitalised traditional reinsurers with surplus capacity and the continued entrance of new capital across the market from alternative sources and insurance linked securities (ILS).

“While the impact on property renewals, especially in the US, has been well documented, a wide variety of lines including marine, aviation, casualty, workers compensation and healthcare experienced improved terms and abundant capacity,” stated Lara Mowery, Managing Director and Head of Global Property Specialty for Guy Carpenter. “As a result, we have seen continued discussions around the expansion of terms and flexibility in adapting solutions to provide more client-specific tailored coverage that extend well beyond property.”

Guy Carpenter highlights that the growth of alternative capital and expansion of the range of offerings it provides continue to have a meaningful impact on the market. Catastrophe bond issuance was notably strong, said the broker, with a record first half of the year for issuance of 144A cat bonds.

Guy Carpenter now puts risk capital outstanding at $20.8 billion and notes that even if no further cat bonds were issued in 2014 the year would still be the fourth highest for issuance on record.

“With an abundance of alternative capital, catastrophe bond pricing continues to decline. In addition, greater flexibility in the market has facilitated first-time achievements in 2014, including a European windstorm bond utilizing an indemnity based trigger and the first ever Japanese yen denominated bond,” commented David Priebe, Vice Chairman of Guy Carpenter. “Alternative capital is also extending its market impact through increased interest in non-catastrophe lines of business, including entities specifically focused on writing more stable business but with a more aggressive investment strategy.”

Guy Carpenter notes that for the catastrophe bond market the trend of oversubscription and price decreases continued for much of the last quarter, with upsizing deals pricing down and helping to set the record pace of issuance. However these price adjustments did moderate towards the end of the second quarter especially on Florida exposed placements.

Guy Carpenter notes; “Despite the aggressive price decreases of the past year, there are signs that market participants are continuing to apply consistent underwriting standards. While there is undoubtedly an abundance of investor capacity, it still appears to be acting in a reasonably disciplined manner.”

Guy Carpenter then gives a useful review of different lines of business and the effects it has seen on their pricing and terms. We repeat this below for you.

Property

US Market

Over the last three prior years, fluctuating conditions between January 1 and July 1 resulted in mid-year market movement. In 2014, renewal behavior returned to a more historical norm as the market remained fairly consistent through the first six months of the year. Price decreases averaged in the mid-to-high teens and changes in coverage, more diverse product offerings and an increase in multi-year options enabled companies to better tailor their coverage to meet their risk management needs.

Global Market Highlights

Rates for Latin America and Caribbean property catastrophe excess of loss cover declined at the July 1, 2014 renewal. However, the fall in pricing was somewhat less pronounced than in other regions. In China, July 1 renewals continued to be a significant marker for catastrophe programs with reinsurers generally offering quotes at levels that were expected. In Australia/New Zealand July 1 renewals continued to show significant decline in rates due to oversupply of capacity following a benign year for catastrophe losses – despite some uptick in the ultimate losses from the 2010/2011 New Zealand earthquakes. Coverage terms expanded in this environment.

Casualty

US Casualty

Rates and terms continued to soften significantly on post-January 1, 2014 quota share reinsurance program renewals. This trend was driven by reinsurers’ desire to diversify their writings as a result of the continuing reduction in property catastrophe premiums. In addition, loss ratios improved on the underlying business as a consequence of rate increases and reserve releases. Casualty clash pricing was flat at July 1, 2014 as programs with losses experienced flat to increased rates and there was no notable increase in available capacity for the sector.

International Casualty

Price trends for July 1, 2014 UK motor reinsurance renewals were very similar to those of January 1, 2014 — single digit increases in program rates with the increases weighted toward higher layers in excess of GBP5 million.

June/July renewals for UK and international programs in general liability, employers liability, commercial directors and officers liability and professional liability continued to experience rate reductions. One minor exception was financial institutions where historic loss experience and the inherent volatility within the class meant it remained the one long-tail sector with less overall capacity. However, even financial institutions experienced rate reductions in both the primary and reinsurance sectors in some instances.

Workers Compensation

Reinsurance workers compensation renewals throughout the first half of 2014 were bound at reduced rates for both working layer (single claimant) and catastrophe layer (multi-claimant loss) programs. Overall, 92.5 percent of the catastrophe layers renewing at July 1 reflected rate decreases. For working layer renewals at July 1, the ratio of layers bound with rate decreases versus rate increases was three to one.

Terror

The lack of US legislative activity in 2013 and through the first quarter of 2014 to renew the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) was a major concern for carriers, particularly for insurers writing workers compensation cover as the peril cannot be excluded from the standard policy. Although the uncertainty surrounding a successful renewal of TRIPRA has been tempered by recent Congressional action, the final terms of TRIPRA’s replacement and timing of enactment may still be an issue for some insurers.

Healthcare & Life

Healthcare

The US healthcare environment saw mid-year pricing trending down for programs with strong performance. Innovation, creativity and flexibility were watchwords as bespoke solutions were explored and implemented for all types of cedents. With the expansion of healthcare access and availability intended by the Patient Protection and Affordable Care Act (PPACA), insurers are looking to capitalize on opportunities for growth with a continued interest in proactive capital management. While there continues to be an abundance of reinsurance capacity and interest, changes in healthcare claims are beginning to have an impact on the market.

Group Life, Disability & Accident Catastrophe

Competition and capacity were adequate for group life and disability lines, affecting market dynamics and somewhat muting the impact of cedents’ loss experience. Pricing remained disciplined at July 1, 2014 and many programs renewed with favorable terms. Additionally, adequate capital and significant rate reductions in property and casualty lines made accident risk a very attractive line to write. Minimum premiums in this segment were tested including those for nuclear, biological, chemical and radiological where cedents exhibited favorable risk characteristics.